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Affidavit of Material Fact - Usage The affidavit stakes out ground in that it constitutes a declaration of what my circumstance is relative to the Internal Revenue Code and the State income tax code. It’s designed to cover nearly all the bases so far as Internal Revenue Code taxing authority is concerned, and since State income tax codes are dependent on the Internal Revenue Code, the State code as well. Since it it endorsed under oath, and is notarized, it qualifies as testimonial evidence. If necessary, it can be entered into any court of law as evidence to support a position. At the onset, it is supposed to support one or possibly both of two Internal Revenue Service forms: Either the Form 9452, which is the personal worksheet used to determine whether or not you are required to keep books and records, file returns, etc., or the Form 8275 Disclosure Statement used to support income tax returns. The substantial authority and good faith and reasonable cause standards are in regulations for the Form 8275. Suppose you have your own business so you don’t receive second-party W-2 or 1099 forms. Possibly at the end of the year you would make our a Form 9452 worksheet, supported by an affidavit of material fact, and by using this IRS-issued form, you concluded that you aren’t required to keep books and records and file returns. You would simply put the information in your files and go about your business to the point your received a CP-515 letter or something to that effect from IRS. “We haven’t received your income tax return for 1999,” the letter might say. Your reply might be something to the effect of, “Enclosed please find my Form 9452 worksheet and affidavit of material fact for calendar 1999. After review of my personal status and geographical and financial circumstance, I concluded that I am not required to keep books and records and file income tax returns. However, if you have evidence of facts other than those set forth in my affidavit, or if you will identify taxing and liability statutes applicable to facts I have set forth that create a tax liability (U.S. v. Menk), I will consider relevance. As it stands, your notice does not provide sufficient information that would enable me to admit or deny your request for a return.” Unfortunately, most people receive W-2 forms for tax withheld at the source, or 1099 forms for contractual or other relationships where they provide services of some kind. In the first instance, they have probably paid into the system, and in both, the Internal Revenue Service is in possession of “evidence” of liability. Consequently, the W-2 and/or 1099 must be neutralized. We’re presently working on an “employer” questionnaire to use with requests to correct the W -2 or 1099 to “zero” taxable income. There must be a good faith effort to get the third party to correct the W-2 or 1099. The questionnaire, copies of the affidavit of material fact, and a few exhibits will accompany the cover letter requesting correction. So far as you or I are concerned, it is irrelevant whether or not the “employer” makes the correction, but this represents a tremendous opportunity as businesses, including medium sized to large corporations, will have the opportunity to examine their relationship to the tax system in an informed light. That isn’t the prime consideration here so I won’t address the subject further. However, there is a secondary issue: If an “employee” has not filed a return for the year in question, he is supposed to bill the employer for his refund in the event of over-payment or in the event tax was erroneously withheld. These particulars are in Part 31 of Title 26 of the Code of Federal Regulations. Consequently, the request to correct a W-2 and the request for refund might be submitted simultaneously. In the event the employer refuses to correct the W-2 and make the refund, the Form 4852 substitute for W-2 and a Form 8375 disclosure statement, with the affidavit attached, should be attached to a Form 843 return requesting direct refund should be filed with IRS. Your billing and the employer’s refusal should also be attached. In the event the employee has filed a Form 1040 return, the employer correction request will be attached to the Form 4852 substitute for W-2, the affidavit to the Form 8275 disclosure statement, and that material all attached to a Form 1040X corrected return. This procedure is also in Part 31 of Title 26 of the Code of Federal Regulations. The 1099 must be attacked in somewhat the same way. People who have received 1099s might complete the Form 9452 worksheet, with affidavit attached, then use those with requests for third parties to correct the 1099 to zero taxable gross income. In sum, the object of the affidavit of material fact is to establish testimonial evidence, then to neutralize whatever “evidence” there might be in IRS possession. Recall my article on affidavits. Those new to the list will find the article in DanMeador list archives. If push comes to shove, IRS must call whoever is responsible for the W-2 or 1099 as a witness as IRS personnel are not competent witnesses so far as legitimacy of documents executed by third parties are concerned. Also recall the Bosset Marketing material that resulted in David Bosset checking his employees, contract sales people and his company out of the system. David and Thurston Bell worked out a somewhat unorthodox strategy where David corrected W-2 and 1099 reports for calendar 1996 & 1997 with “zero” W-2 & 1099 reports. IRS special procedures wrote off approximately $2.3 million in previously reported “gross income”, and refunded approximately $25,000 Bosset Marketing previously paid. I am satisfied that the demand for “administrative due process” set forth in the first part of David’s cover letter was the key to IRS capitulation, but the rip tide was that David was the only “competent witness” who could validate or invalidate tax liabilities he previously reported. In other words, David withdrew and thereby nullified whatever evidence IRS had, and since IRS personnel are not competent witnesses, they were left high and dry with the additional problem of possible prosecution for depriving David and Bosset Marketing of administrative due process. We’re still working out procedure with select cases so we don’t have successes or failures to report, but this is a general overview. The affidavit of material fact, when properly verified, constitutes testimonial evidence. It shifts the burden of proof to IRS and third parties. If and when you undertake this kind of aggressive approach, it would be prudent to be aware of defensive options. For example, if IRS personnel elect to ignore proper procedure, you need to call on assistance of the Taxpayer Advocate (download a new version of 26 U.S.C. § 7811 & attending regulations), and send notice of probable criminal complaints to the Treasury Inspector General of Tax Administration. This response might be premature as several people are contributing to the overall strategy, and the account is by no means complete. Dan Meador